CATHAY LAND, INC. V. AYALA LAND, INC.

836 SCRA 490

1370-1379 – Interpretation of Contracts

FACTS: In a Complaint, the Cathay Group (Cathay Land and Cathay Metal Corp.) alleged that the Ayala Group unjustifiably denied passage to Cathay Group's personnel,
vehicles and heavy equipment through its properties by putting up checkpoints and constructing gates which caused the development of the latter's South Forbes Golf City
project to be interrupted and delayed.

The parties executed a Compromise Agreement, where they mutually agreed to amicably settle all their claims as well as other claims and causes of action that they may
have against each other in relation to the Complaint. Specifically, the Ayala Group granted a pedestrian, vehicular and utility easement of right of way in favor of the Cathay
Group in consideration of and subject to the latter's faithful compliance of its undertakings in the Compromise Agreement. This includes undertakings relating to the
development of the Cathay Group's properties in the area:

2.3 Undertakings of the Cathay Group Relating to the Development of the Cathay Properties. The Cathay Group will develop the Cathay properties into such developments
which are consistent with the residential character of the adjacent developments of Ayala Land and Laguna Properties in the Sta. Rosa, Laguna and Silang, Cavite areas. More particularly,
but without limiting the generality of the foregoing, the Cathay Group undertakes that it will not develop and will not allow the development of one or more of the
following types of projects: (i) cemetery, memorial park, mortuary or similar development or related structures; (ii) industrial park or estate, whether for heavy, medium or light
industries; (iii) high-rise buildings; (iv) low-cost or socialized housing subdivisions within the purview of Batas Pambansa Blg. 220; and (v) warehouse or warehouse facilities.

It was also expressly stated in the Compromise Agreement that in the event of breach on the part of the Cathay Group of any of its undertakings, the Ayala Group has the right to
withdraw or suspend the grant of easement of right of way from the Cathay Group.

In fine, in case of breach on the part of Cathay Group, the remedies available to the Ayala Group are as follows: first, the Ayala Group shall notify the Cathay Group of such
breach; and second, the Ayala Group can either suspend or withdraw the grant of easement of right of way in case the Cathay Group fails to rectify such breach within 30 days
from receipt of notice. Such right may then be enforced through a writ of execution pursuant to Section 6 of the Compromise Agreement which states.

The RTC approved the Compromise Agreement. In 2005, the Cathay Group commenced the development of its South Forbes Golf City project. Subsequently, however, the
Ayala Group noted that Cathay Group's marketing materials for the project showed plans to develop a thirty-hectare cyber park which will house, among others, call center
offices, and to construct high-rise buildings. The Ayala Group thus made verbal and written demands to Cathay Group to abide by the terms and conditions of the Compromise
Agreement particularly on its undertaking not to construct high- rise buildings, but to no avail.

Ayala Group’s contention: The term "high• rise building" as stated in the Compromise Agreement should follow the definition in the Fire Code of the Philippines (Fire
Code), which defines the same as "at least 15 meters high."

ISSUE: WON the Cathay Group violated the terms of the Compromise Argument.

Argument: The term "high-rise building" as used in the Compromise Agreement should not be interpreted to imply a "height limit of three storeys," as such definition in the Fire Code was not
contemplated by the parties when they entered into the Compromise Agreement.
 RULING: The parties did not agree on what constitutes a "high-rise building."

There is no clear definition in the Compromise Agreement as to what constitutes a

"high-rise building." A review of the records shows that the parties never agreed on
the definition of the term "high-rise buildings" when they entered into the
Compromise Agreement. The Ayala Group insisted on the definition of a "high-rise
building," i.e., one which is at least 15 meters high, in the IRR of the Fire Code,
while the Cathay Group sought the adoption of prevailing industry standards and
practices in determining what a "high-rise building'' is. The Cathay Group later on
cited the definition of the term as found in the IRR of the NBC and insisted that "as
long as it does not construct any building beyond the twelve (12) storey building
height limit, or thirty-six (36) meters above the highest-grade level, there would be
no violation of the Compromise Agreement.

In the interpretation of documents, the Rules of Court provides for a presumption

that the terms of a contract were used in their primary and general acceptation:

Sec. 14. Peculiar signification of terms. - The terms of a writing are presumed to have
been used in their primary and general acceptation, but evidence is admissible to show that they
have a local, technical, or otherwise peculiar signification, and were so used and understood in
the particular instance, in which case the agreement must be construed accordingly.

Thus, when the terms of the agreement are so clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms are to
be understood literally just as they appear on the face of the contract.

In this case, the records are bereft of proof to show that the parties
had agreed to adopt the definition of the term "high-rise building"
found in the IRR of the Fire Code. The Compromise Agreement, too, does not
contain any provision that points to a reference to the Fire Code as to the usage of
the term.

Besides, the IRR of the Fire Code itself limits its scope to matters dealing with "life
safety from fires and similar emergencies in high-rise buildings," covering ''fire
safety features in construction and protection of exits and passageways and
provisions for fire protection." Consequently, the definition of the term "high-rise
building" found therein is inapplicable to this case, precisely because it is not in
keeping with the nature and object of the Compromise Agreement.

We simply cannot reasonably conclude, in the absence of clear language to this

effect, that the parties intended to use as reference a law that pertains to fire
protection in order to define a term in a contract relating to the construction of
buildings. Rather, the term "high-rise buildings" should be interpreted to
follow its general and primacy acceptation, or in other words, the prevailing
industry standards and practices as adopted by the Department of Public Works and
Highways in the IRR of the NBC, at the time the Compromise Agreement was
executed.

It is clear that the CA committed an error when it found that the Cathay Group had violated the terms of the Compromise
Agreement.